MSILís board has reviewed the deal terms so that the entire capex for Suzukiís Gujarat subsidiary would be funded through depreciation and equity brought in by Suzuki as against earlier plan of post-tax profits to cover part of capex.

In case of termination of the agreement, the Gujarat subsidiary would be transferred to MSIL at book value and finally the deal would be consummated on approval of minority shareholders.

Our negative stance on the earlier deal was largely owing to the take-or-pay arrangement, resulting in significant variability of margins for MSIL and assured RoCE for Suzuki, parallel capacity outside MSIL and inefficient use of MSILís cash. Initial investment by Suzuki can be effectively viewed as an endowment to MSIL ó which adds Rs 99 to MSILís share price, if the deal is approved by minority shareholders.

We believe the revised deal structure allays most of the key concerns arising from the earlier deal, leading to reinstating our stock multiple to 15x (from 12x). A healthy product pipeline, expected double-digit volume growth and margin expansion will drive earnings over FY14-16E. We upgrade the stock to ĎBUY/SOí with a target price of Rs 2,115 (R1,692 earlier).

Expected demand recovery on the back of good monsoon, substantial rural focus, shift to petrol cars and new launches augur well for Maruti Suzuki India . Margins to remain modest on adverse $/R and rising discounts on diesel vehicles.